Festive food sales spark at Sainsbury's

(Sharecast News) - J Sainsbury said on Friday it remained on track to deliver annual retail profits of more than £1bn, following strong demand for food and drink in the run up to Christmas. The supermarket, the UK's second-largest after Tesco, saw grocery sales jump 5.1% in the six weeks to 3 January, and by 5.4% over the third quarter.

However, shares in the blue chip came under pressure in morning trading after weak consumer confidence spending weighed on sales elsewhere in the group.

General merchandising including clothing fell 1.1% over the 16 weeks, while at Argos, sales softened 1.0%, and by 2.2% over the core six-week Christmas period.

Total retail sales across the group in the 16 weeks to 3 January rose 3.9% excluding fuel, or by 3.4% on a like-for-like basis. That was down notably on the second quarter's total sales growth of 4.8%.

As at 0930 GMT, the stock had fallen 6% at 310.6p.

However, Sainsbury's said: "We have made balanced choices to invest and sustain the strength of our competitive position through the most important trading period of the year.

"These investments in value, quality and service have delivered further strong grocery trading momentum and market share gains and, despite weaker general merchandise market conditions, we continue to expect to deliver retail underlying operating profit of more than £1bn."

Chief executive Simon Roberts added: "We have real confidence in our momentum as we head into the final quarter and remain focused on helping our customers get great value for money and delivering for all our stakeholders."

Sainsbury's also forecast free cash flow of more than £550m for the year, up from previous guidance for more than £500m, which it said reflected "strong" working capital performance.

Richard Hunter, head of markets at Interactive Investor, called the sales fall at Argos was a "disappointment, particularly given the Black Friday and festive opportunities"

He continue: "Argos remains a work in progress after some years in the doldrums on reduced discretionary spend.

"Accounting for 16% of group revenues, the unit remains something of a thorn in the side for the group has a whole."

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: "Sainsbury's is more exposed to general merchandise than its peers, owing to its ownership of Argos. General merchandise is the most cyclical area of the supermarket economy to be in, so being overweight in this arena can really slow sales down when things get tough.

"Recent initiatives are helping to drive higher sales volumes at Argos, but consumers remain cautious and are steering clear of big-ticket items."